Markets have huge post-election tumble

Sam Zuckerman, Chronicle Staff Writer

Published
4:00 am PST, Thursday, November 6, 2008

Specialist Elizabeth Rose looks at a screen at her post on the floor of the New York Stock Exchange on Wednesday. Volatility has returned on Wall Street, with the Dow Jones industrials falling 486 points to the 9,139 level, and all the major indexes tumbling more than 5 percent. less

Specialist Elizabeth Rose looks at a screen at her post on the floor of the New York Stock Exchange on Wednesday. Volatility has returned on Wall Street, with the Dow Jones industrials falling 486 points to the ... more

Photo: Richard Drew, AP

Photo: Richard Drew, AP

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Specialist Elizabeth Rose looks at a screen at her post on the floor of the New York Stock Exchange on Wednesday. Volatility has returned on Wall Street, with the Dow Jones industrials falling 486 points to the 9,139 level, and all the major indexes tumbling more than 5 percent. less

Specialist Elizabeth Rose looks at a screen at her post on the floor of the New York Stock Exchange on Wednesday. Volatility has returned on Wall Street, with the Dow Jones industrials falling 486 points to the ... more

Photo: Richard Drew, AP

Markets have huge post-election tumble

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President-elect Barack Obama got a sobering reminder of the economic woes he will face when he enters the White House as stocks plunged more than 5 percent in the first day of trading after Tuesday's historic election.

The Dow Jones industrial average shed 486.01 points to close at 9,139.27, while other major indexes posted similar losses. The fall marked the biggest drop ever registered in share prices on the day after a presidential election.

All the same, Wednesday's stock rout was not so much a negative verdict on an Obama presidency as a judgment by investors that the economic landscape will be exceptionally bleak for the new leader, analysts said.

"People were saying he will be inheriting something even more challenging than what was expected," said Sam Stovall, chief investment strategist with Standard & Poor's Equity Research.

Data released Wednesday underscored the economy's accelerating downward momentum. Private-sector employers cut 157,000 jobs in October, more than six times the number in September, according to ADP Employer Services. And a separate reading from the Institute for Supply Management showed the service sector contracted in September.

Those reports added to the steady drumbeat of evidence that the nation has fallen into a sharp recession. They prompted analysts to predict that the nation's unemployment rate will shoot higher from its September 6.1 percent level when the Labor Department releases its October employment report Friday.

"The market is bracing for very negative economic news," said Marc Pado, market strategist for the brokerage firm Cantor Fitzgerald.

In many ways, stocks were ripe for a tumble. The Dow had risen almost 18 percent in six days from a low of 8175.77 posted Oct. 27 despite a hostile economic environment. Share prices had risen as much as they could in the face of those conditions, according to analysts.

Professional investors have been preparing for an Obama victory for weeks, market pros say. "It was definitely not a surprise," Stovall said.

While Obama's proposal for higher capital gains taxes might weigh against stocks, he is also seen as a leader focused on reigniting the economy, which would boost share prices.

"Because of where we're at with the economy, what matters is that we've got somebody new and he's got a plan," said James Paulsen, chief investment strategist with Wells Capital Management in Minneapolis. "Tax increases, small-business taxes, health care - that will all come back but they won't be there for a while. The only thing that matters now is when will the economy bottom."

Analysts expect share prices to bounce around for some time in a range whose upper boundary is limited by a recessionary economy and whose floor is set by cheap valuations.

In the longer run, much will depend on how investors perceive Obama, analysts say. They are already trying to handicap which industries will benefit under an Obama presidency and which will lose ground based on his campaign pledges. Among the potential winners are alternative energy, civil construction, autos and low-end retailers, analysts predict. Losers could include traditional energy producers such as coal, high-end retailers and pharmaceuticals.